Getting Pinned Economically

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Hold those shoulders to the mat for a three-count and you've pinned your opponent. Simple as 1-2-3.

It looks as if our economy is about to get "pinned."

1. The housing market is in shambles. The number of foreclosures is continuing to grow. Recovery... maybe, maybe 2009... in some areas.
2. Cost of energy causing a significant slowdown in consumer spending and sending distribution costs through the roof for business.
3. The Fed is using the "I" word

WASHINGTON (Reuters) - It makes "eminent sense" to raise interest rates as risks to the U.S. economy recede amid high inflation and the central bank should not wait too long, a top Federal Reserve policy-maker said on Tuesday.

"Just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well," said Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Virginia.

Lacker, who will be a voter on the U.S. central bank's interest-rate-setting committee in 2009, said growth would be tepid this year and only pick up gradually next year.

Mr. Lacker is correct that raising interest rates to counter inflation caused by rampant spending and unbridled demand is a sound policy. The problem is that interest rates were lowered to avoid an economic crisis cause by the previous cycle of rapidly declining rates followed by rapidly increasing rates... along with a total lack of a rational energy plan... and right now the threat of inflation is not a result of rampant spending and unbridled demand... just the opposite situation has developed.

So, is Mr. Lacker's plan to fight an artificially induced inflationary pressure with econocide? Having contributed mightily to the current housing problems and weak dollar by a knee-jerk interest rate management approach, it is not unreasonable to think that the Fed may add more injury with another knee-jerk reaction to a perceived economic threat.

Remember, the Fed's actions may affect all of us, but it is their primary goal to protect the banking system.

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